Six Charts That Show Liberal Propaganda is Immune to Reason & Evidence

Somebody on ThinkProgress.org recently produced this attempt to an argument for more deficit spending called “Six Charts That Show It’s Time To Reset The Budget Debate” (in which case by the way he must be happy about what’s been going and will continue to go on for a while).

It’s not like anything of what he’s saying there is surprising or new since liberal and conservative propaganda both seem to continue to have a hard time coming up with one original idea or thought that has not already been used and refuted ad infinitum.

For the most part he relies on projections, and then in the end he gives us a bonus nugget of knowledge which is the apparently in his mind surprising news that the government bond yield (which I have been consistently and correctly expecting to go lower over the past years) is unusually low.

What this guy is proposing is in short the continuation of government budget deficits because they’re “only” going to be at around 3% in the projections for the next few years (the years after that he seems to ignore because I presume he’s still feverishly working on a solution for those). The money raised he then of course wants to see poured into infrastructure projects, so that shovel ready projects can be launched, roads fixed, equipment employed, people put to work, money earned, which (and I am now supporting his case by adding my own words to his stereotypical Keynesian narrative) will then of course trickle through the entire economy and through the multiplier effect produce wealth and get the economy jumpstarted again so that the government can earn more tax money to then pay off their debts which is as we all know what governments do all the time; in other words, all the unoriginal, mindless, boring, embarrassing, childish, dumb-ass Keynesian nonsense that many of us, myself included, were taught and swallowed at face value in undergraduate economics.

I’m not even going to harp on the fact that he’s going with projections which are highly questionable (and which I have by the way in the past accurately predicted to be way off). But let’s just assume for the sake of making the case as easy as possible for this amateur economist that these are 100% accurate predictions.

If you’re unclear on the fundamentals about what it is you’re writing about, it sometimes helps to go way back to the very basics of what it is that you’re proposing, and that is in this case the problem with government budget deficits (I’ll just post the conclusion here, but read the entire article if this is new to you):

(…)
This is very important: When people say something like “the deficit is damaging/bad/a problem/etc.” what it ultimately means is that the money used for more spending and favors and owed by the government to investors will be taken from you or your children in the future via the threat of kidnapping and imprisonment if you don’t comply. This is really at the root of all the problems around public debt owed, and the deficit that we hear about every year is just piled on top of that existing debt.

Due to the fact that the effects of deficits are not immediately noticeable to the general public they are an incredibly convenient way of funding government programs and shifting involuntary burdens on to future disenfranchised generations.  Thus public debts will always continue to grow along with rising taxes, until a level is reached where the required tax burden becomes untenable, where creditors can no longer be paid off, the government can no longer fund itself, where social tensions rise between recipients and payers, and where the whole superstructure that is the government collapses in its entirety.

“Solutions” to Deficits

As I explained, the ultimate damage caused by public budget deficits occurs at that point in time when taxpayers are forced to restrict their consumption and unjustly bear the cost of malinvestments from the past.
(…)

And regarding the low interest rates argument, I will take you back to what I wrote over a year ago, which by the way includes a little prediction of what’s happening in Japan right now:

And yes, they can rollover debt for as long as interest rates are low. I may note that I have consistently and correctly predicted record low Treasury rates for years to come.

(…)

All these low rates will do is allow the debt to get even more bloated. And interest rates won’t remain low forever, as you can see in Greece and similar situations. Did people like the above author see any of those sovereign debt crises coming?

What about Japan? Their debt is the most crushing of all industrialized nations, and I’m predicting that their time of low rates will be drawing to an end any day now, with their debt and pension crisis having entered its final stage. Then what?

They have been running deficits for two decades, people like this author ought to love what they did. Now what? … All you’ll hear is chirping crickets.

Deficits never matter … until they do. The party is always fun, the hangover never is.

Cheers!

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Keynesianism’s Depredations and Futility in Action

Japan’s Prime Minister sounds the alarm bells:

Japan’s top government spokesman said the country’s fiscal situation is “approaching the edge of a cliff,” underscoring Prime Minister Naoto Kan’s call for a national debate on raising the 5 percent sales tax.

Kan is “expressing his deep sense of crisis and resolution about the sustainability of social security as the aging population increases under a low birth rate,” Chief Cabinet Secretary Yoshito Sengoku told reporters today in Tokyo. “The supporting fiscal conditions don’t allow for any delays, it’s finally approaching the edge of a cliff.”

Politicians don’t blow the whistle until it’s way too late. So this pretty much sounds like an open and official admission that Japan’s retirement avalanche has begun and is in full swing.

Here’s what I wrote about this a while back:

From 1989 on, the Japanese government has launched one stimulus after another to no avail, leaving Japanese taxpayers with the largest public debt per capita of all industrialized nations.

A burden that the US government seems to be more than willing to have its taxpayers shoulder over the years to come unless someone picks up a history book and tries not to feverishly repeat mistakes others made in the past.

Thus the long term outlook for the US economy is the fate Japan took: A long lasting correction supercycle with one failing “stimulus” program after another, and with on and off periods where the economy slips out of and back into recessions from time to time.

This whole mess in Japan started over 20 Years ago!

Keep this in mind any time you hear Keynesian whackos like Paul Krugman alongside politicians in power propose more and more government spending and debt as a panacea to the US’s comparable problems. They are today laying the foundation for the depredations that are to come in 10+ years from now.

Note that Japan’s PM is proposing to raise the sales tax to cover the shortfall.

This kind of stuff is predictable. As I explained in What’s the Problem With Government Budget Deficits:

Ironically, when you look at the political stage, all you will hear in regards to “solutions” to deficits in the end, will for the most part be tax hikes. These are not solutions. They are the ultimate manifestation of the very problem at hand. They are, in fact, the precise opposite of a solution. Keep this in mind whenever you hear politicians talk about deficit solutions. Raising taxes to reduce deficits is absolutely and 100% an admission that one has completely failed to solve this deficit problem, and in fact laid the final brick that was missing in the very process of the public’s depredation via deficit spending.

Also don’t fall prey to the illusion that the newly elected Republicans in Congress will do anything meaningful to turn the tide. If anything at all, they may come up with half-assed measures to appease the public for a little while longer. But will they propose 50+% cuts in military spending, Medicare, Medicaid, or Social Security??

Just take military spending as an example:

Republicans claim to be anti-taxes, yet they gladly and openly support the wars and destruction that end up gobbling up more tax money than anything else. Democrats claim to be anti-war, yet they gladly and openly support the higher taxes that end up funding all those war expenses.

Could there be a more beautiful example for this mad and brilliant shell game called “public finances”?

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James Galbraith’s “Wisdom” on the Deficit

If your head doesn’t explode when exposed to the brain-numbing, foggy, clouded, boring, repetitive, and useless droning of mainstream economists, then you might find this post entertaining.

Otherwise, I recommend you don’t read on.

Here is a comment that James Galbraith made in a recent interview:

EK: You think the danger posed by the long-term deficit is overstated by most economists and economic commentators.

JG: No, I think the danger is zero. It’s not overstated. It’s completely misstated.

EK: Why?

JG: What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate.

My comment: Wow, that’s pretty amazing indeed. If this is “the only possible answer” he can come up with, then of course it makes perfect sense for him to hold such beliefs. But in that case he might be well advised to take his half baked thoughts back into the kitchen and stick them in the oven once more.

The nature of the problems with deficits is unfortunately a fundamentally different one, and it has nothing at all to do with potentially rising interest rates. At the root of the problem with deficits is the misdirection of resources toward bureaucratic waste and corruption, away from demanded productive factors and voluntary choices, which ultimately all has to be borne by the taxpayer in the form of higher taxes. As I explained before in great detail:

The burden of restricted consumption is thus shifted over time from the investor over to the taxpayer. However, the investor made the choice voluntarily, along with all the risk of default which comes with the contract. (In fact, a complete debt default is precisely what the investor would suffer for funding a comparable project on the market, ensuring corresponding and healthy incentives moving forward.) The investor’s time preference and value preference is at no point being acted against. Nothing is violently taken away from him or anybody else. He willingly participates in the transaction.

The taxpayer, however, never had any choice. He doesn’t necessarily realize that what the government consumes now will be funded by his restricted consumption in the future. Money that would usually have been used to fund the purchases and thus spur production of capital goods (whose employment would increase the production of consumer goods in the future), is now employed in fundamentally consumptive government activities which necessitates that the debts be paid off through the restriction of future consumption lest a default occur.

But the crucial point with the budget deficit is that, from the consumers’ (= the majority’s) point of view, the effects of deficit financing don’t show up until a later point in time. In the meantime it all appears to be taking its normal course as things would on the market. But when the debts need to be paid off, the expectation that the borrowed funds were used to obtain capital goods which would enable repayment through the production of more consumer goods with less labor input than before, turns out to be a completely false one. No new capital was generated from the projects in question and upkeep of existing capital was, as a tendency, being neglected. Capital consumption inevitably ensues.

Thus, with a budget deficit, and more broadly with the public debt, the fundamental damage occurs at the point where money is taken away from the taxpayer to pay off the investors who voluntarily funded unproductive and ultimately coerced projects in the past.

Now, if anybody thinks he brings something new to the table by objecting with the argument “but the government does invest in demanded productive factors”, I would kindly ask that person to show me the prevailing and abounding examples of government projects that were so productive that the debts which funded them could be paid off out of the proceeds from the sale of the plentiful output of demanded consumer goods generated via the “investments” made, so that taxes were not needed to pay off the debts. To make it easy, I would even, just for starters, be happy with one single example! Not that that would rest the case, but if would show some foundations to the objection, rather than just mindless trash pulled out of nowhere.

Anyway, Mr. G. rambles on:

Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn’t be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis.

My comment: You see how he misses the fundamental point? He thinks that the concern over the deficit is driven by concerns over the government’s ability to fund the deficit. I have little doubt, and have always said so, that for now and probably for quite a while longer the US government will be able to honor its public debts. But what I have also said is that it will do so by taxing and looting us to the hill! Galbraith doesn’t give a damn about this problem. To him, as long as the government can pay off its debts, there are no problems.

From his point of view it makes perfect sense. He has been a public servant for pretty much all of his professional career, and probably depends, directly or indirectly, on government grants, subsidies, and positions/fellowships in his job. He has never had to sell any products and services on the market, deal with consumer feedback, or fundamentally understand the incentives provided by competition and the vices of bureaucracy. He will pay lip service to some of these ideas where it’s absolutely necessary. But he will never understand what it means to be in the shoes of someone who is not in government.

He sees no need in delving into such mundane subjects as entrepreneurship, profit and loss, factors of production, the problems with bureaucracy, the problems with letting concepts overshadow empirical reality.

So there are two possibilities here. One is the theory is wrong. The other is that the market isn’t rational. And if the market isn’t rational, there’s no point in designing policy to accommodate the markets because you can’t accommodate an irrational entity.

My comment: Isn’t it amazing how he talks in absolutes all the time? Again and again he says things like “there is only one possible answer” or “there are only two choices”. But saying so doesn’t make it true, Mr. Galbraith. You do need to provide some reasoning if you don’t want to appear like a complete clown.

Let’s assume for a moment (yes, I am making it as easy as possible for him) that he is right about the idea that the only problem one could possibly think of when talking about the deficit is that they push up interest rates. Fine. In that case you can’t just look at the nominal interest rate that currently prevails on the market! You have to look at the difference between the rate that would have prevailed, had the government balanced its budgets from now through the next decade, versus the rate that prevails now based on trillions upon trillions in deficits.

I would humbly submit that the prevailing rate would now be much lower than it currently is, had the government balanced the budget. This is not to say I know this for an absolute fact, nor does Mr. Galbraith or anybody on this planet. But evidence and logic leads me to believe that this would be the case. And I do think I might have at least a little bit of credibility based on my past predictions in the Treasury market. So even when I accept and apply his completely false premise, I still end up unsatisfied and utterly unimpressed with his “logic”.

I hope you can understand that if his fundamental knowledge and theories about the government deficit are based on such rampant nonsense, there is really no point in listening to or dealing with anything that follows from it.

Thus I won’t delve into the remainder of his ramblings because it quite honestly makes me angry. I have nothing but sincere disdain for pompous intellectuals who carelessly advance such dangerous theories that are bound to hurt millions of people in the long run.

The blood and sweat of generations is on the hands of the mystics and apologists of the powers that be. They are the ones who make suffering and corruption possible, and they are the ones we have to defeat once and for all in the battle of ideas.

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Obama on Solid Track to Top Bush’s Deficits

The AP reports Budget deficit tops $1 trillion for first time:

The deficit of $1.09 trillion so far this year compares to an imbalance of $285.85 billion through the same period a year ago. The deficit for the 2008 budget year, which ended Sept. 30, was $454.8 billion, the current record in dollar terms.

Revenues so far this year total $1.59 trillion, down 17.9 percent from a year ago, reflecting higher unemployment, which cuts into payroll taxes and corporate tax receipts.

Under the administration’s budget estimates, the $1.84 trillion deficit for this year will be followed by a $1.26 trillion deficit in 2010, and will never dip below $500 billion over the next decade. The administration estimates the deficits will total $7.1 trillion from 2010 to 2019.

Just to get an idea of how reliable these government estimates are: Please note that not too long ago, in its 2009 budget document, the government said that it was expecting a deficit of $611 billion for 2009, and $300 billion and lower for the years to come.

I noted back then that these numbers are way off and in February proposed the following figures:

Now that we have updated figures on coming expenses it’s time to update the deficit predictions:

  • $1.65 trillion for 2009
  • $1.6 trillion for 2010
  • $1.95 trillion for 2011
  • $2.2 trillion for 2012

As you can see, now my 2009 figure is optimistic already. I expect same will apply to the following years. I also said in that same post:

If President Obama keeps spending like this, and really wants to cut the deficit in half by 2013, he will at one point be faced with no other choice but to raise taxes on all Americans, rich, middle class, and poor. This is of course nothing new. Taxes have been rising in the US for the past century.

Back then there was no talk about those kinds of taxes. Since then through now we have heard more and more such proposals.

A national sales tax:

With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.

Taxes on health benefits:

An effort by Senator Max Baucus of Montana to develop compromise health care legislation has come under sharp assault by fellow Democrats who have urged him to abandon a plan to help pay for the bill by taxing some employer-provided health benefits.

A tax on generous employer-provided health plans is favored by Republicans and several centrist Democrats. But opinion polls show the idea to be generally unpopular, and several senators up for re-election in 2010, including the majority leader, Senator Harry Reid of Nevada, have said they oppose it.

Health tax for high income earners:

Democratic lawmakers in the U.S. House of Representatives want to increase taxes on the highest- earning American families to help pay for an overhaul of the nation’s health-care system.

Legislation to be unveiled on July 13 would raise $540 billion over the next decade by setting a 1 percent surtax on couples with more than $350,000 in annual income, said Representative Charles Rangel, chairman of the tax-writing Ways and Means Committee. Higher rates would take effect for those earning $500,000 and $1 million, Rangel said.

… we shall see how many more ways and suggestions to loot and tax the people into oblivion they will come up with over the following months.

Meanwhile, contact your representatives. Tell them your opinon. Tell them you will do everything in your power to vote them out of office in 2010 if they vote for any more boondoggles.

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Germany Considers Constitutional Amendment Against Deficits

The Financial Times writes:

The next German government is almost certain to crack down on spending and drastically raise taxes after the lower house of parliament yesterday adopted measures that come close to banning budget deficits beyond 2016.

The controversial constitutional amendment, part of a reform of federal institutions, will prohibit Germany’s 16 regional governments from running fiscal deficits and limit the structural deficit of the federal government to 0.35 per cent of gross domestic product.

The amendment still requires approval by a two-thirds majority of the upper house of parliament which represents the regions. The vote is scheduled to take place on July 12 and is expected to be approved.

The most sweeping reform of public finances in 40 years was an “economic policy decision of historic proportions”, Peer Steinbrück, finance minister, told parliament shortly before MPs endorsed the amendment with the required two-thirds majority.

The vote underlines Berlin’s determination quickly to plug the holes that the economic crisis, two fiscal stimulus packages and a €500bn ($706bn, £437bn) rescue operation for German banks are expected to blow in the public coffers this year and next.

In 2009 alone, legislators from the ruling coalition expect the federal budget to show a deficit of more than €80bn, twice the current all-time record of €40bn reached in 1996 as Germany was absorbing the formidable costs of its reunification.

This figure does not include the deficit of the social security system, which is expected to rocket too, as unemployment rises to an expected 5m next year.

The constitutional amendment, popularly known as the “debt brake”, allows a degree of flexibility in tough economic times, just as it encourages governments to build cash reserves in good times.

Yet economists have warned the new rules could force the next government to implement a ruthless fiscal crackdown as soon as it takes office after the general election of September 27 if it is serous about hitting the 2016 deficit target.

“Given the massive fiscal expansion we are currently seeing, the ‘debt brake’ will lead to a significant tightening of fiscal policy in the coming years,” Dirk Schumacher, economist at Goldman Sachs, wrote in a note.

In a separate assessment, the Cologne-based IfW economic institute said the federal government would need to save €10bn a year until 2015 through a mixture of tax rises and spending cuts.

Klaus Zimmermann, president of the DIW economic institute in Berlin, said the next government might have to increase value added tax by six points to 25 per cent. This would be the biggest tax rise in German history.

The “debt brake” could complicate Angela Merkel’s re-election bid. Under pressure from parts of her Christian Democratic Union, the chancellor recently pledged to cut taxes if returned to office in September, though she pointedly failed to put a date on her promise.

The Free Democratic party, the CDU’s traditional ally, has made hefty income tax cuts a key condition for forming a coalition with Ms Merkel’s party should the two jointly obtain more than 50 per cent of the votes.

The debate has cut a deep rift within the CDU, which was threatening to deepen further yesterday as opponents of tax cuts seized on the constitutional change to back their arguments.

Günther Oettinger, the CDU state premier of Baden Wurttemberg, said “promises of broad tax cuts are unrealistic… First we must overcome the crisis, then we need more robust growth, and when we finally get more tax revenues, we should use them to repay debt, finance core state activities and for limited, very targeted tax cuts.”

Oettinger is wrong when he says we have to overcome the crisis first before cutting taxes. It is the same old argument that governments advance again and again so as to procrastinate necessary changes. This amendment is something that states around the world should mimic in one way or another. It is high time to institutionalize fiscal responsibility by legal means.

A strong FDP (Free Democratic Party) in the next German coalition would be the best thing that could happen to Germany. No change will emanate from SPD or CDU, just as in the US no change can emerge from Democrats or Republicans in their current state.

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